NET FINANCIAL DEBT ON 31 MARCH 2006 STOOD AT 39,043 MILLION EURO, A DECREASE OF 815 MILLION EURO FROM 31 DECEMBER 2005

The Board of Directors of Telecom Italia, chaired by Marco Tronchetti Provera, today examined and approved the Group’s results for the 3 months ending 31 March 2006.

TELECOM ITALIA GROUP
The Telecom Italia Group’s financial results for the first three months of 2006 and the relative comparable period have been restated according to IAS/IFRS accounting standards. The data for the two periods being compared have been recalculated taking into account activities which have been sold or are in the process of being sold. They are Entel Chile Group, Finsiel Group, Digitel Venezuela, TIM Hellas, TIM Peru and the Buffetti Group. In particular, the consolidated balance sheet in the first quarter of 2005 included the results of the Entel Chile Group (as this was sold in June 2005, TIM Hellas (which was sold at the beginning of June 2005)) Finsiel Group (which was sold in June 2005) and TIM Perù (which was sold in August 2005). Further, in 2005, the following groups exited the area of consolidation: Databank, Televoice, Innovis, Cell-Tel, Olivetti Lexikon Nordic AB, Olivetti Servicios Y Soluciones, Olivetti Tecnost Africa and di Med1 IC-1, while Liberty Surf Group entered the area of consolidation.

Revenues amounted to 7,482 million euro with an increase of 6.5% compared with the first quarter of 2005 (7,023 million euro). Excluding the effects of exchange rate variations and changes to the area of consolidation, organic growth was 2.7% (+194 million euro). Revenues for the first quarter 2006, compared with the same period of 2005, were impacted by reductions to termination fees made in September 2005. Among the main drivers of organic growth in the first quarter of 2006 were the TIM Brasil Group (+86 million euro), the European Broadband Project (+60 million euro), and the TI Media Business Unit, due to increased advertising income and the digital terrestrial project.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 3,295 million euro with an increase of 0.3% compared with the first quarter of 2005 (+11 million euro). Ebitda equalled 44% of revenues in the first quarter of 2006 (46.8% in the first quarter of 2005), where the comparison with the year earlier period principally reflects the reduction of termination fees, and the evolution of commercial policies in Italian mobile. Excluding exceptional items, the effect of exchange rate variations and changes to the area of consolidation, the organic decline was -0.4% (-13 million euro). Always at the organic level, the EBITDA margin was 44.6% compared with 46% in the first quarter of 2005, while higher than the end-2005 level (43.4%).

EBIT (Operating Result) amounted to 1,984 million euro with a decline of -2.4% compared with the first quarter of 2005 (-48 million euro). This result was influenced by increased depreciation and amortization (+186 million euro compared with the same period of 2005) due to greater investment in innovation, with a shorter useful life, this year and in 2005.
Ebit equalled 26.5% of revenues in the first quarter of 2006 (28.9% in the first quarter of 2005). Excluding exceptional items, the effect of exchange rate variations and changes to the area of consolidation, the organic decline was 132 million euro (-6.5% compared with the first quarter of 2005). Always at the organic level, the EBIT margin was 25.6% (28.1% in the first quarter of 2005) and largely in line with the level at end-2005 (26%).

Consolidated net profit in the first quarter of 2006 was 744 million euro (772 million euro before minority interests), an increase of 13.4% compared with the first quarter of 2005 (656 million euro). The increase in consolidated net profit is mainly due to higher Parent Group profits as a consequence of the integration with TIM.

Industrial investment in the first quarter of 2006 totalled 1,025 million euro, an increase of 113 million euro compared with the same period in 2005. This was mainly due greater investment in the domestic fixed-line (+68 million euro) and domestic mobile (+63 million euro) contexts.

Net financial debt on 31 March 2006 stood at 39,043 million euro (39,858 million euro at end-2005), a decrease of 815 million euro. This reduction stems mainly from net cash flows generated by operating activities of approximately 2 billion euro (excluding industrial investments for 1,025 million euro).

The Group headcount on 31 March 2006 stood at 85,253. On 31 March 2005, the Group headcount was 83,208.

RESULTS OF OPERATIONS

Telecom Italia Media’s data for the first three months of 2006 were reported in a press release distributed on 4 May 2006, following its approval by the Board of Directors.

WIRELINE

Revenues were 4,471 million euro, an increase of 2.6% compared with the first quarter of 2005 (+115 million euro). Organic growth, applying the same consolidation area and excluding the exchange rate effects, was 1.3% (+58 million euro). This result, even considering the impact of the cut in fixed-mobile termination rates, applied from the second half of 2005, and the acceleration of the migration of voice traffic from fixed-line to mobile, was underpinned by the successful development of the European and national Broadband markets. Excluding the negative effect of the termination rate cut, organic growth would have been 2.3%.

The core telephony sector registered revenues of 2,414 million euro (-6.3% compared with the same period in 2005). The segment is characterized by a reduction of traffic revenues due to lower fixed-mobile termination rates (equal to approximately 45 million euro) and continuing traffic migration to mobile telephony. This reduction is partly offset by the continuing growth of Flat offers which now count 6,397,000 subscribers (equal to approximately 30% of fixed lines).

Revenues in the Internet segment were 377 million euro, an increase of 7.1% compared with the first quarter of 2005 due to the continuing growth of Adsl revenues (+12.3% compared with the same period in 2005). Wireline’s portfolio of Broadband lines in Italy stood at over 6.1 million accesses at the end of April 2006 (+400,000 from end-2005). Considering the 1.5 million Broadband accesses in France, Germany and Holland (+202,000 from end-2005) Wireline’s total portfolio in Europe stood at over 7.6 million Broadband accesses.

Revenues in the Business Data segment were 443 million euro, an overall increase of 6% compared with the first quarter of 2005, underpinned mainly by strong growth in ICT services.

Revenues from Wholesale services were 945 million euro (+98 million euro), an increase of 11.6% compared with the same period in 2005. This stemmed mainly from the international component (+84 million euro).

Revenues of the European Broadband Project (France, Germany and Holland) saw strong growth and totalled 204 million euro, an increase of 124.2% compared with the first quarter of 2005 (+41.7% organic growth). Ebitda, 2 million euro, reached break-even in the first quarter of 2006 compared with a loss of 13 million euro in the same period of 2005.

Total EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 1,983 million euro, a decline of -0.9% compared with the first quarter of 2005 (-17 million euro). This margin was impacted by both an increase in interconnection costs (+3% compared with 2005) and a different revenue mix, as well as cost increases linked to the development of the European project. Ebitda equalled 44.4% of revenues (45.9% in the first quarter of 2005). Organic growth was 0.3%, while, always at the organic level, it represented 44.7% of revenues (45.2% at end-2005).

EBIT (Operating result) was 1,175 million euro, a decline of -6.4% compared with the first quarter of 2005 (-80 million euro). This result was impacted by increased depreciation and amortization due to greater industrial investment in innovation this year and in past years. Ebit equalled 26.3% of revenues (28.8% in the first quarter of 2005). The organic variation was -4.1%.

Industrial investment was 756 million euro, an increase of 67 million euro compared with the same period in 2005. This increase stems from investment in innovative network technology and the development of new services.

MOBILE

On 31 March 2006, the portfolio of lines (domestic and international), excluding those of companies which have been sold or were being sold during the period under examination, was 50.7 million lines with an increase of 24% compared with the first quarter of 2005. On 30 April 2006, TIM exceeded 30 million lines in Italy.

Results for the main business areas (domestic and Brazilian activities) follow:

ITALY

Revenues from domestic activities totalled 2,370 million euro, an increase of 0.4% compared with the first quarter of 2005 (2,361 million euro). Excluding the negative impact of the reduction in fixed-mobile and mobile-mobile termination charges, growth would have been 5.3%.

In particular, revenues were boosted by strong growth in value added services (VAS), 406 million euro, an increase of 11.5% compared with the first quarter of 2005.

VAS accounted for 17.9% of revenues from services (15.9% in the first quarter of 2005). Voice revenues amounted to 1,757 million euro, a decline of -4%. Even with the benefit of the accelerated migration of fixed-line traffic to mobile, revenues were negatively impacted by the implementation of the new termination charges. Excluding this tariff change, growth would have been 2.3%. Revenues from handset sales saw strong growth (107 million euro, +48.6% compared with the first quarter of 2005), linked mainly to the sale of 3G terminals.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 1,260 million euro, a decline of -2.6% compared with the first quarter of 2005. Ebitda equalled 53.2% of revenues (54.8% in the first quarter of 2005). The organic variation was -2.8%. Excluding the negative effect of the cut to termination fees, organic growth would have been 1.5%.

EBIT (Operating result) was 925 million euro (-6% compared with the first quarter of 2005). This result was impacted by higher levels of depreciation and amortization linked to the development of 3G network infrastructure and support platforms for new innovative services. Ebit equalled 39% of revenues (41.7% in the first quarter of 2005).

Industrial investment in the first quarter of 2006 was 173 million euro (110 million euro in the same period of 2005).

With 29.664 million lines on 31 March 2006 (over 1 million more than end-2005), TIM confirms its position as leader in the domestic market, with a market share of approximately 40.3%. UMTS customers numbered approximately 3 million and accounted for more than 10% of total customers, compared with less than 6% only six months ago.

BRAZIL (average exchange rate euro/real 0.378417)

The TIM Brasil Group, the only operator with nationwide GSM coverage, had on 31 March 2006 a customer base of over 21 million lines (+43.5% compared with 31 March 2005) and confirms its position as the country’s leading GSM operator with 17.8 million lines.

The Group has achieved a market share of 23.5%, confirming its second place at the national level.

The TIM Brasil Group’s consolidated revenues totalled 2,213 million reais, an increase of 15.9% compared with the same period in 2005. This was due to the strong growth of the customer base and the contribution of revenues from VAS services (+51.1%), which represented 6.8% of service revenues, up from 5.4% in the first quarter of 2005.

Consolidated EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 478 million reais, an increase of 169 million reais compared with the same period in 2005 and equalled 21.6% of revenues, 5 percentage points higher than the previous year.

Consolidated EBIT (Operating result) was negative 94 million reais, an improvement of 40.1% compared with the first quarter of 2005. The improvement was achieved despite higher depreciation and amortization connected with the development of network and IT assets.

Industrial investment for the period amounted to 166 million reais, a decrease of 105 million reais compared with the first quarter of 2005 as a consequence of the progressive completion of national coverage.

OLIVETTI

Revenues amounted to 94 million euro, with a decline of 14 million euro compared with the first quarter of 2005; excluding the effect of exchange rate variations and changes to the area of consolidation. The organic variation was negative 13 million euro. This figure was impacted above all by revenue declines linked to traditional ink-jet products and specialized printers.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was negative 12 million euro (-16 million euro compared with the first quarter of 2005). This result was impacted by lower margins in the ink-jet products and specialized printers, as well as the reduction in revenues from technical assistance in the gaming sector.

EBIT (Operating result) was negative 17 million euro (in line with the first quarter of 2005). This variation stemmed from the reduced margins in the ink-jet products, specialized printers sectors and gaming.

Industrial investment amounted to 2 million euro, a decrease of 50% compared with the first quarter of 2005.

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The Board of Directors today also approved the 2005 Annual Report (Form 20-F), the document prepared in accordance with American regulation as Telecom Italia is registered with the US Securities and Exchange Commission and its shares listed as ADRs on the New York Stock Exchange.

§

The Board of Director also approved the planned merger through incorporation into Telecom Italia S.p.A. of Nuova Tin it S.r.l., a 100%-controlled company, with the aim of implementing the One Company model adopted in October of 2005.

As stated in respective by-laws, the merger (which will not call for a capital increase by the incorporating company) will be decided by the administrative bodies of the two companies, in accordance with the conditions and terms indicated in article 2505 of the civil code. It is expected that the operation will be completed by the end of the year.

The results of the first three months of 2006 will be illustrated to the financial community at a conference call which will take place at 17.30 today (Italian time).

Journalists will be able to follow the presentation, without the possibility of asking questions, by calling +39 06 33168.
For those who are unable to follow the event in real time it will be possible to hear a recording by calling +39 06 334843 (access code 108540#).

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